09Class2

09Class2 - Summary 1 An efficient stock market is one where...

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Summary 1. An efficient stock market is one where stock prices reflect all publicly available information. Therefore stocks are assumed to be “fairly” priced and it is impossible to find “overvalued” or “undervalued” stock short of having insider information. 2. Behavioral finance is on the rise. 3. Bullish investor sentiment is considered a bearish sign. 4. The five themes of financial accounting will reappear in the course. 1
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I. Reading the Auditor’s Report It is essential when analyzing an annual report, to read the auditor’s report. To make sure one doesn’t overlook this, it is good practice to do this at the beginning of an analysis. If you are not familiar with the reputation of the firm’s auditor, then learn about it. 2
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II. Reading the Balance Sheet. In analyzing an annual report, it is common practice to revise the financial statements to make them easier to read and analyze. The basic idea is to condense the financial statements by aggregating certain accounts. There is no GAAP guidance for how to do this and practice varies. Here is a reasonable approach. 3
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Assets Liabilities and Equities Cash and Marketable Securities Short-Term Debt Accounts Receivable Accounts Payable Inventory Other Current Liabilities Other Current Assets =Total Current Liabilities =Total Current Assets Long-Term Debt Net Property, Plant and
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This note was uploaded on 04/21/2009 for the course MGMT 126 taught by Professor Miller during the Winter '09 term at UCLA.

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09Class2 - Summary 1 An efficient stock market is one where...

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